Coolhand's Market Analysis

About a month ago, it was looking like global markets were on the cusp of falling apart. Many technical indicators were on sells and sentiment was getting rather bearish overall (including some of the smart money surveys). January was down and that certainly did not help optimism given the odds heavily favor a negative year when January ends lower. In mid-February, the shorts were piling up and that often means a reversal is just a matter time.

It was, and that reversal has been rather impressive.

But it's not just a short covering rally that we are seeing. We are also seeing something that has been part of the global economic landscape for some time.

It's called bazooka economics.

If genuine growth can't stimulate the market, than maybe more "stimulus" will.

But they have been using various kinds of stimulus for years now with little real effect. Sure, many of the major indexes are higher, but it had little to do with economic growth.

While the reversal may have started almost 4 weeks ago, the powers that be can hardly be comfortable with these stimulus packages. Do not assume that they have our backs. They fear losing control of their debt bubble.

Last week, the European Central Bank cut interest rates across the eurozone to zero and presented an unprecedented package of growth-boosting measures (bazooka measures) against a backdrop of a fragile global economy.

Mario Draghi, indicated that interest rates would stay “very low” for at least another year and he expects the eurozone to remain embedded in negative inflation for months.

The measures that were taken in the eurozone reduced the main interest rate from 0.05% to zero and also cut two other interest rates. In addition, the ECB expanded its quantitative easing program and said they were offering cheap four-year loans to banks. Those loans would have negative interest rates.

Mario Draghi does not anticipate that it will be necessary to reduce rates further, which did not sit well with some in the investment community. However, he provided a caveat that new facts could change the situation and his outlook on the market.

So after years of failed bazooka economic measures, they are still at it.

If you were not aware of it, some factions in the UK are trying to take the UK out of the EU, but some ministers are campaigning for the country to stay in the EU, hoping the latest round of ECB finanical support will avert a potential crisis in the eurozone.

But the only thing these new stimulus measures might do is buy more time.

The fact is, Mario Draghi’s efforts won't mean much without structural reforms of fiscal policy by European governments.

Does that sound familiar? One of the biggest gripes from central bankers is the failure of governments (in this case the EU) to embrace economic reforms.

And it's been eight years.

As far as our own stock market goes, the S&P 500 closed above its 200 dma on Friday. That was a potential target for a top, but market breadth remains on an upward tack and liquidity is rising.
If the 200 dma holds, then what?



Another area that may present significant resistance is the point at which price on the S&P 500 gets 6% above its 50 dma. That is the red line on this chart. That line is also near some trend line resistance.

We have an FOMC policy announcement on tap this week. I wonder if a bazooka will play a role in this latest meeting?